Cash determines the course at FrieslandCampina

Looking at the basic dairy market, one would be disappointed. Based on that, there wouldn't be much left to distribute, but at FrieslandCampina, more factors are at play. The divisions with high-added-value products, such as Specialized Nutrition and Ingredients, are doing quite well. However, the gross margin doesn't tell the whole story. Factors like reduced inventory, lower pension costs, and moderate investments also helped boost net profit this year.

CEO Jan Derck van Karnebeek put it this way: "We have an accounting figure called 'profit,' but what matters is 'cash.'" FrieslandCampina delivered on that score. There will be a supplementary payment of €1,31 per 100 kilos, 10 cents more than the previous year. For a dairy farm producing 1 million kilos of milk, that means over €13.000. Incidentally, this represents FrieslandCampina's best result in five years.

Smallest division performs best
FrieslandCampina achieved its best results in its smallest division: Specialized Nutrition, or infant formula. Although the Chinese market still generates the most revenue, FrieslandCampina also performed well elsewhere. This division's operating profit, with a turnover of €1,349 billion, rose by over 47% to €339 million. FrieslandCampina is fortunate not to have been affected by the scandal involving contaminated ARA oil from a Chinese supplier, which led to a global recall of infant formula. Nevertheless, the company is unhappy about the challenges facing competitors, according to Van Karnebeek. Such issues undermine confidence in the sector.

The second-smallest division, Middle East, Pakistan, and Africa, performed modestly but saw volume growth and posted its first profit in a long time in Nigeria. Pakistan also posted positive figures.

Borculo prints result Ingredients
The Ingredients division, which produces and sells high-quality whey products, among other things, once again posted a substantial profit. However, the result could have been higher had it not been for additional costs at various factories. The problems in Borculo, in particular, weighed on the result. According to Van Karnebeek, the outlook for Ingredients is exceptionally positive. Starting this year, the performance of Wisconsin Whey Products will also be taken into account.

Volatility and full factories
The results of the Professional division, the largest in terms of revenue, are the least positive. This is often the case. With revenue of €3,9 billion, the result dropped to minus €70 million. According to the company, this division "absorbs all market volatility." FrieslandCampina doesn't seem particularly concerned about this loss, even now that its membership and milk supply are increasing. Last year, 182 new suppliers started supplying, and that number is expected to increase in the coming years. "Our factories are fully booked, including Milcobel's," says the CEO.

Milk pressure not problematic
From a strategic perspective, the current milk pressure is not considered problematic. In fact, the reversal of the trend of many quitters and few new arrivals is considered a positive development. There will still be plenty of quitters in the coming years, and maintaining scale is crucial for the company.

Van Karnebeek and CFO Hans Janssen emphasize that there are still plenty of challenges ahead in the coming years, particularly in the area of ​​reducing greenhouse gas emissions. Farmers have already achieved a great deal, but a significant challenge remains. According to Van Karnebeek, it is achievable.

Political clarity needed
This requires political clarity, including on the nitrogen issue. According to FrieslandCampina, the government must provide clarity while simultaneously addressing food security and supporting the requested adjustments. Legal certainty regarding permits and legislation is essential. In addition to support for innovations like the Lely Sphere and Bovaer, FrieslandCampina also believes support for manure digesters is essential. These can contribute to lower nitrogen emissions, increased use of domestic fertilizers instead of artificial fertilizers, and increased domestic energy production.

Difficult market and merger costs
Livestock farmers are expected to continue to face challenges in the first half of this year. Globally, the dairy market is struggling with oversupply, and many commodity prices remain under pressure. Improved market conditions are only expected in the second half of the year. Furthermore, the costs of the merger with Milcobel will put some pressure on results this year.